Generational Conflict in Business and Society
This paper explores a ubiquitous problem in organization that I call “generational conflict.” Generational conflict is a difference of interest between the people of the present and the people of the future. I focus primarily on conflict among the equity holders of business firms, but I show that the problem also appears in trusts, nonprofits, families, cities, states, and nations. Generational conflict takes many forms. Among other things, it discourages investment in the future, sows disagreement over the pricing of entry and exit, complicates transitions between cooperative and investor ownership, and drives spiraling cycles of withdrawal. Many investor-owned corporations solve these problems by issuing “permanent” equity interests that last as long as the firms that issue them. But other firms, such as law firms, customer coops , and investment funds, issue shorter “impermanent” equity interests that force these firms to find other solutions. Firms with impermanent equity mitigate generational conflict by reducing the mismatches in duration between generations of equity holders and the decisions they make and by disciplining firm governance to reduce the odds of opportunistic behavior across generations. I survey the range of generational conflicts and solutions and offer a theory to explain the balance between them. I argue that the solutions to generational conflict represent some of the most transformative social technologies of modernity. Without them, it would be difficult to imagine skyscrapers, vaccines, airplanes, computers, or much of the other technological and physical capital that characterizes the modern world.
